BUY NOW OR PAY LATER
The housing market explosions in Toronto and Vancouver might be closer than you think. If owning a home in Montreal is on your bucket list, dip in now or pay much more later on. Bert Archer sets the scene and looks at four promising neighbourhoods.
Montreal’s real estate market is about to become a game of musical chairs, and anybody who doesn’t get a seat soon might be left standing, permanently.
It might be easy to remain complacent about your ability to buy a house in Montreal. After all, Montreal’s median prices for single family homes — detached, semidetached and row houses, among the first to become unaffordable to the average person — are $300,000 lower than they are in Toronto, and $500,000 less than Vancouver.
An average person with average income can still entertain thoughts of buying a house downtown. The slow but steady increases in prices — two, three, four per cent — can act like the proverbial slowly heating water the frog doesn’t know is about to boil. But if you’re renting now, and figure you’ll buy a house someday, when that next promotion comes through, or the baby’s born, it might be too late.
All the signs of a market on the brink of unaffordability are there. Worries of a saturated condo market sagging in 2015 turned around sharply in 2016. Montreal registered the lowest unemployment rate in 30 years in December, and immigration levels are rocketing, with the first six months of 2016 — the latest figures available — outstripping all of 2015. And foreign investors are almost certainly already on their way to the next undervalued, untapped real estate market now that Ontario has imposed a 15 per cent tax on foreign buyers in the Toronto area as B.C. did for Metro Vancouver. More money drives prices up. So does more people. Put them both together in a city with the obvious and perennial attractions of Montreal, and it might spell the end of the affordable house on the island.
The jig’s already up in Vancouver and Toronto, of course. Anyone of average income who didn’t buy at least 15 years ago can only peer through the windows as she walks through downtown neighbourhoods. But these cities can serve as object lessons for Montrealers, glimpses into the future, as it were. Vancouver and Toronto were ranked the first and second most unaffordable cities for 2016, according to the Royal Bank of Canada, which has been tracking housing affordability since the 1980s. Montreal is No. 3. Though median incomes are almost precisely the same in all three cities, the home price index, a figure that some real estate boards calculate to represent as close to a true average as they can, should be enough to shock you out of your complacency. In Toronto, the number is $727,300. In Vancouver, it’s $906,700. And that’s including condos. (Vancouver’s benchmark price for a single family dwelling is over $1.2 million.)
But for the moment, things are looking pretty good, even if it does increasingly seem like the quiet before the storm. According to Montreal-based real estate market analyst JLR, the median price for a home in Montreal last year was $410,000, up four per cent from 2015. Compare that with the median income — median being the middle entry in a list of numbers, as opposed to the average, which is the sum of all divided by the number of entries, a figure that can be greatly swayed by extremes on either end — which was $75,010 in 2014, the latest year for which figures are available. That income, depending on your debt situation, could get you a mortgage for a house in the $350,000 range. That’s pretty close to the median, which means that there are still a lot of houses that are still perfectly affordable for average folks. Those salaries are not going anywhere fast — Montreal’s median is within about $1,000 of both Toronto and Vancouver — but housing prices are a different story. And that’s where RBC’s affordability index tells the clearest story.
The bank calculates the total cost of home ownership — interest rates, Taxe de Bienvenue, everything — and expresses it as a percentage
Compared to the housing-price explosions in Vancouver and Toronto, Montreal’s real-estate scene looks pretty good, but there are indications that this is the quiet before the storm. Bert Archer looks at those signs and four neighbourhoods where home prices might soon slip out of reach.
of the median household income.
“The rule of thumb,” says senior RBC economist Robert Hugue, “has been that 32 per cent is what we call affordable.”
Montreal passed that point way back in 2003, but it’s now at 40 per cent for all housing types, meaning 40 per cent of your gross income would have to be spent on your house. Toronto is at 64 per cent, and Vancouver at 92 per cent. There are two important points to note here.
First, looking only at single family dwellings, Toronto jumps to 76 per cent, and Vancouver to a ridiculous 130 per cent, whereas Montreal climbs just one per cent to 41 per cent. That means there’s not that much difference between condo and single family home expenses (when you factor in things like condo fees), which means it still makes more sense to buy a house. Second, that 40 per cent mark where Montreal is sitting right now? That’s exactly where Toronto was 15 years ago. Nobody’s saying Montreal’s market will reproduce those steep climbs, but that affordability number doesn’t have to go much higher before those island houses slip out of the average grasp for good.
And in case you’re hoping the province’s political roller-coaster might lend a helping hand by dowsing the prices from time to time to give you a second chance, don’t.
“We haven’t seen any price decreases since the middle of the ’90s,” says Paul Cardinal, head of Centris, the central listing for all properties in Quebec. “We tried to empirically test that hypothesis, but we weren’t able to see any significant effect of politics on real estate prices.”
Condos are a different thing, and there will always be some small ones available at the lowest end of the market. But if it’s a house you want, JLR analyst Joanie Fontaine figures you should probably act now.
“As population grows, there will be fewer and fewer single family houses,” she says, “and the price of these types of houses will grow faster, and you will need to be farther from the centre of the city, and you’ll need to leave the island.”
So if you want to own a piece of the place, you’d better do it, and quick. Here’s how and where.